Walmex shares extend losses after downgrade

Credit Suisse cuts Mexican retailer to neutral rating

LOS ANGELES (MarketWatch) — Shares of Wal-Mart de Mexico SAB slumped in Mexico City trading Tuesday, extending losses as the stock was downgraded in the wake of bribery allegations against the retailer.

Wal-Mart de Mexico’s (WALMEXV) shares lost 4.4% to 36.21 pesos ($2.75), ending near session lows with a downgrade by Credit Suisse to neutral from outperform. The shares dropped Monday by 12%, their worst one-day performance since May 1998, after a New York Times article alleged Walmex used bribery as it expanded operations in Mexico and that its parent company, Wal-Mart Stores Inc.
WMT, -1.58%
, didn’t vigorously investigate the payments.

Separate from the allegations against Walmex, the company late Monday said first-quarter profit rose nearly 5% from a year ago to 4.71 billion pesos on a 14% rise in revenue to 95.97 billion pesos. High inventories and a rise in operating expenses pressured Walmex’s profit. See more about Walmex's Q1 results.

Tracking the broader market, the IPC equity index (IPC) fell 0.3% to 38,849.08 as losses in Walmex’s shares deepened and as retail, finance and home building shares struggled. Among market heavyweights, America Movil
AMX, -1.12%
and cement maker Cemex
CX, -1.93%
each closed up 1%. Cemex’s first-quarter results are due on Thursday. See preview of Cemex's results.

The IPC fell 1% in the previous session.

As the market moved toward Friday’s expected interest-rate decision by Banco de Mexico, figures released Tuesday by the Inegi statistics agency showed consumer prices declined by a larger-than-expected 0.42% pace in the first half of April. Meanwhile, Inegi’s IGAE measure of gross domestic product rose 6.2% in February from the year-ago period. But the measure of most of Mexico’s GDP fell 0.8% from January on a seasonally adjusted basis.

Walmex downgraded

Credit Suisse said its downgrade of Walmex to neutral followed its discussion with Walmex’s management about allegations the company in the early- through mid-2000s bribed Mexican officials to quicken the pace of permits needed to open new stores. The New York Times in a report over the weekend said executives at Wal-Mart’s headquarters in 2005 didn’t discipline leaders at Walmex or notify law-enforcement officials in Mexico or the United States. The bribes may total $24 million over hundreds of payments. Walmex is Wal-Mart’s largest foreign subsidiary.

Wal-Mart in a statement Tuesday said it continues to cooperate with federal law enforcement authorities and that it “will not tolerate” noncompliance with the U.S. Foreign Corrupt Practices Act “anywhere or at any level of the company.” Read more about Wal-Mart.

Among the matters Credit Suisse said it learned at its meeting with Walmex’s management is that Walmex isn’t currently using third-party facilitators, known as gestores, to expedite permitting in Mexico and that permits are handled by Walmex employees. It’s also not clear if the allegations are beyond statute of limitations yet, wrote Credit Suisse analyst Antonio Gonzalez to clients.

While it sees, at this point, no reason to change its earnings estimates on Walmex, a resolution to the potential bribery case “might be a cumbersome and long process,” Gonzalez wrote. Even after the shares lost almost $7 billion in market value on Monday, said Gonzalez, “we see limited catalysts for the shares to recover the lost ground soon, until a resolution on this matter is reached.”

Credit Suisse lowered its price target on the shares to 40 pesos each from 50 pesos each.

For its part, the Mexican government said Monday it won’t investigate the allegations against Walmex. If the allegations are true, the bribes would have taken place on a local level because they involve payments to municipal and state officials, the office of Mexico’s President Felipe Calderon said in a statement.

Argentina’s Merval (MERV) turned higher, by 0.1% to 2,311.18. Shares of YPF (YPFD)
YPF, -1.23%
underperformed, falling 4.9% a day ahead of an expected vote in Argentina’s Senate over the government’s plan to take a controlling stake in the oil and gas producer. Spain’s Repsol YPF SA (REP) is the majority owner of Repsol.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information.
All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only.
Intraday data delayed at least 15 minutes or per exchange requirements.